NAB cuts paperwork to build loans

Page Tools

NAB is the first big bank to respond to the sagging property
market, recognising that business loans, not home loans, will be
its main source of growth.

As lenders were throwing money at home owners over the past few
years, many small-business operators and the self-employed were
frustrated. A businessman may own a $2 million home, but that means
little when he is having an application for a $50,000 business loan
assessed.

Small-business operators were forced, in part at least, to turn
to low-doc lenders - which do not require as much income
documentation - but the main losers have turned out to be the big
banks.

NAB's share of the mortgage market shrank between March last
year and January this year, a report by Macquarie Research Equities
has found. Westpac suffered most, but NAB was the first to glove
up.

NAB gave the idea of its own low-doc products a test run through
its HomeSide subsidiary late last year, and has now decided to
offer the loans through its 170-strong branch network.

Still, there are low-doc loans and there are low-doc loans.
While NAB has joined others in reducing the amount of documentation
needed to qualify for a loan, borrowers must have funds on deposit
or equity in the family home of at least 40 per cent of the loan
amount.

NAB says the high loan-to-value ratio reduces the risk
associated with the loan, so the default rate on such loans should
match that of a standard home loan.

As NAB is financing the loans through traditional sources - that
is, bank deposits - rather than securitising them on the market, it
is cheaper for the bank and gives it more flexibility in setting
rates.